Beigebell Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 May 2019 |
| Neutral Citation | [2019] UKFTT 335 (TC) |
| Date | 29 May 2019 |
| Court | First-tier Tribunal (Tax Chamber) |
[2019] UKFTT 335 (TC)
Judge Philip Gillett, Ian Abrams
Tim Brown, counsel, instructed by Appleton Richardson & Co, appeared for the appellant
James Puzey, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – MTIC fraud – Whether or not trader in chain a fraudulent defaulter – Held yes – Whether or not appellant knew or should have known that transactions were connected to fraud – Held not – Appeal allowed.
[1] This was an appeal against a decision of HMRC, notified to the appellant (“Beigebell”) in a letter dated 4 October 2016, to deny input tax credit of £144,628.40 for the VAT period 10/15. HMRC's grounds for this decision were that Beigebell's transactions in SD memory cards were connected with the fraudulent evasion of VAT and Beigebell knew or should have known of that fact.
[2] Following the denial of input VAT in the decision of 4 October, HMRC notified Beigebell by letter dated 20 October 2016 that its VAT return for the period 10/15 had been amended and it had been assessed to VAT of £3,647.68 pursuant to s73 of the Value Added Tax Act (“VATA”) 1994.
[3] Beigebell registered for VAT, with the number 995 5982 37, with effect from 22 July 2010. It carries on business from Trident Court, 1 Oakcroft Road, Chessington, Surrey. Beigebell's directors and shareholders are Mr Jack Orton and Mr Marcus Griffiths. Beigebell carries on business as a supplier of promotional merchandise, such as stickers, bags, T shirts, note books and mouse mats to companies such as McLaren, Triumph Motorcycles, Channel 4 and The Ritz. The transactions in memory cards with which this appeal is concerned were dealt with by Mr Orton alone.
[4] The input, output and VAT figures for the Appellants trading in period 10/15 are as follows:
| Output tax | 49,827.21 |
| Input tax | 190,807.99 |
| Net tax (credit) | 140,980.78 |
| Outputs | 1,059,530 |
| Inputs | 956,090 |
[5] The outputs figure for this quarter was more than double any other quarter in the previous three years and the inputs figure was likewise very significantly higher than that in previous quarters.
[6] There was no disagreement between the parties as to the transactions involved and, from the evidence provided to us, we find the following as matters of fact.
[7] Between 1 September 2015 and 8 September 2015 Beigebell made six purchases of memory cards from a single supplier, Online Distribution Limited (“ODL”), and sold these on in five deals to Hi View Trading SL (“HVT”) as set out as follows:
- Under invoice SI-1227233 (Deal 1) dated 1 September 2015, the purchase of 1,000 SanDisk 256GB SD cards (traced back to Shark Partners Ltd);
- Under invoice SI-1227344 dated 7 September 2015, the purchases of:1,000 Samsung EVO SSDs (Deal 2) (traced back to a contra-trader, Askos Wolt LLP); and550 SanDisk 256GB SD cards (Deal 3A) (traced back to a defaulting trader Raya International Ltd);
- Under invoice SI-1227360 dated 8 September 2015, the purchases of:200 SanDisk 256GB SD cards (Deal 3B) (traced back to Askos Wolt LLP); and500 SanDisk 512GB SD cards (Deal 4) (traced back to Askos Wolt LLP); and
- Under invoice SI-1227234 (Deal 5) dated 1 September 2015, the purchase of 1,000 SanDisk 512GB SD cards (traced back to Askos Wolt LLP).
[8] The deal chains involved in the above transactions were as follows:
- Shark Partners Ltd sold the goods to SD 2013 Ltd,
- SD 2013 Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Kristos Sp. Zo.o., a Polish company.
- HMRC has been unable to trace the source of the goods acquired by Shark Partners Ltd
- Askos Wolt LLP bought the goods from Borough Brothers KFT, a Hungarian company,
- Askos Wolt LLP sold the goods to Global SFX Ltd,
- Global SFX Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Tibizon company Sp. Zo.o., a Polish company.
- Raya International Ltd sold the goods to SD 2013 Ltd,
- SD 2013 Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Tibizon company Sp. Zo.o..
- Askos Wolt LLP bought the goods from Borough Brothers KFT,
- Askos Wolt LLP sold the goods to Global SFX Ltd,
- Global SFX Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Occtanis company Sp. Zo.o., another Polish company.
- Askos Wolt LLP bought the goods from Borough Brothers KFT,
- Askos Wolt LLP sold the goods to Global SFX Ltd,
- Global SFX Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Occtanis company Sp. Zo.o..
- Askos Wolt LLP bought the goods from Borough Brothers KFT,
- Askos Wolt LLP sold the goods to Global SFX Ltd,
- Global SFX Ltd sold the goods to Online Distribution Ltd,
- Online Distribution Ltd sold the goods to Beigebell,
- Beigebell sold them to Hi-View Trading, and
- Hi-View Trading sold them to Occtanis company Sp. Zo.
[9] The dates of the transactions executed by Beigebell are set out below. Again there is no dispute as to these dates.
| Deal No. | Goods | Purchase Order | Invoice (from ODL) | Cash to ODL | Cash from HVT | Goods in | Goods out |
| 1 | 1000 SanDisk 256GB | 24.8.15 | 01.09.15 | 01.09.15 | 28.08.15 | 27.8.15 | 07.09.15 |
| 2 | 1000 Samsung 250 SSD | 04.09.15 | 07.09.15 | 07.09.15 | 04.09.15 | 07.9.15 | 08.09.15 |
| 3a | 550 SanDisk 256 GB | 04.09.15 | 07.09.15 | 07.09.15 | 04.09.15 | 07.9.15 | 07.09.15 |
| 3b | 200 SanDisk 256 GB | 04.09.15 | 08.09.15 | 08.09.15 | 07.09.15 | 07.9.15 | 07.09.15 |
| 4 | 500 SanDisk 512 GB | 04.09.15 | 08.09.15 | 08.09.15 | 07.09.15 | 07.9.15 | 07.09.15 |
| 5 | 1000 SanDisk 512 GB | 24.8.15 | 01.09.15 | 01.09.15 | 28.08.15 | 27.8.15 | 07.09.15 |
[10] The legislation governing the recovery of input tax is contained in ss24 and 25 of the VATA 1994 and in the VAT Regulations 1995. The right to deduct input tax is also set out in articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT.
[11] There is no dispute in the current appeal as to the effect of this legislation and it is therefore unnecessary to repeat it in this judgement. However the fundamental principle which arises from it is that if a taxable person has incurred input tax that is properly allowable he is entitled to set it against his output tax liability and, if the input tax credit due to him exceeds the output tax liability, receive a repayment.
[12] The ECJ has held that a taxable person who did not know and who had no means of knowing that his transactions were connected to fraud, should recover the input tax incurred in respect of his transactions: see Optigen Ltd v C & E Commrs (Joined Cases C-354/03, C-355/03 and C-484/03) [2006] BVC 119. However, in Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559, the ECJ held that the contrary of this principle also applied to input tax claims where it said, at [56] to [59]:
[56] In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.
[57] That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.
[58] In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them.
[59] Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of “supply of goods effected by a taxable person acting as such” and “economic activity”.
[13] Accordingly, a domestic court must refuse the right to deduct input tax where a transaction is “connected with fraudulent evasion of VAT”, and this is something which the taxable person knew or should have known or had the means of knowing.
[14] In Mobilx Ltd (in administration) v R & C Commrs [2010] BVC 638 (“Mobilx”) The Court of Appeal (Moses LJ giving the judgment) considered what it described as two essential questions, at [4]:
[4] Two essential questions arise: firstly, what the ECJ meant by “should have known” and secondly, as to the extent of the knowledge which it must be established that the taxpayer ought to have had: is it sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or must it be established that he knew or should have known that the transactions in which he was involved were connected to fraud?
[15] On the first question, the Court concluded as follows, at [52]:
If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law,...
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